Class Warfare Blog

November 6, 2013

Obscene Wealth = Lower Taxes

In an article by James B. Stewart in the November 1, 2013 New York Times, Mr. Stewart studied the taxes of the top 1% of U.S. families. To be a member of the 1% in the U.S. in the year studied, 2009, you had to earn $344,000, hardly a huge income. But included on that list were numerous hedge fund managers (glorified insurance agents) who made incredible sums, “David Tepper, founder of Appaloosa Management, who earned an estimated $4 billion; George Soros, who earned $3.3 billion; James Simons of Renaissance Technologies, who made $2.5 billion; and John Paulson, at $2.3 billion, who famously bet against mortgage-backed securities and cashed in on the housing collapse.”

Now, I calculated the hourly wage for these gentiles (assuming minimum paid holidays and eight hour work days): Mr. Tepper made roughly $2,000,000 per hour, Mr. Soros made $1,650,000 per hour, Mr. Simons made $1,200,000 per hour and Mr. Paulson made $1,200,000 per hour. Please realize that this was in the depth of the Great Recession and that the vast majority of Americans will not make in their lives what these folks did in one afternoon.

I bring this up because Mr. Stewart found that the actual federal taxe rates paid by the 1% get lower the closer to the top of the group you get. The top 1% paid an effective rate of 24%, the top 400 earners paid less than 20%.

People are often confused by the marginal rates (which top out at 39.6%) and the effective rate which is what actually gets paid. The marginal rate only affects “income” above a certain level. The top rate currently applies to income over roughly $250,000 a year. So, how can these assholes who make more than that in one hour end up paying less than 39.6% on that income? Easy, make sure your money isn’t called “income.” Call it, say, “carried interest” instead. And then make sure a law gets passed that taxes that money at a very low rate, say 15%. How much money would you have to donate to federal politicians to get such a law passed, do you think? Anyone making $2,000,000 per hour would make $80,000,000 in one 40 hour work week, and that should be enough to hire a small army of lobbyists to get any tax change enacted, don’t you think?

I remember when the top marginal tax rate was 91%. In those days, you had to work hard to keep your income down to avoid those rates, but the rich would never have thought to pay less tax so obviously as they do now. Money hasn’t changed. The rich have. The rich used to be “old money” and “new money.” Most inherited their money, like the Koch brothers, and then either expanded their fortunes or squandered them. They honorably could avoid paying really onerous taxes but none of them had figured out how to pay less than the middle class did . . . until now.

And, they believe in the “Golden Rule,” which is “those who have the gold (money) make the rules.” With Citizen’s United the law of the land, what kind of rules do you think they will come up with next?

They wouldn’t go after our public schools to try to turn them into profit centers, do you think? Done!

They wouldn’t try to remap politics to sideline government as a force to oppose their will, do you think? Done.

What’s next?

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11 Comments »

  1. Obscene is the right word. It is. Watching the news yesterday i saw a story on an apartment tower going up in Monaco. Sure, it’s Monaco, i get that, property prices are going to be outlandish, but this was perverse. The penthouse (5 floors worth) was on the market for $400 million. HALF A BILLION DOLLARS FOR A HOLIDAY APARTMENT!!

    Like

    Comment by john zande — November 6, 2013 @ 11:32 am | Reply

    • Only three months income for some of the blokes I highlighted. I never bought a house (or tried to buy, rather, never completed any of those transactions) that wasn’t priced at many times my annual income, so that apartment is cheap for those guys.

      Hey, the rich are job creators! Think about all of the wood carvers, gold leaf aplliers, decorators, etc. hired to build that apartment!

      PS We’ve moved (again)! Just change the Apt # from 28C to 17A (110 feet down and about 30 feet east). Effective Date: October 1, 2013

      *Entia non sunt multiplicanda praeter necessitatem.* ************** Steve Ruis

      Like

      Comment by stephenpruis — November 6, 2013 @ 11:38 am | Reply

  2. It’s almost as if you don’t know what money is or how it works at all. Or how human nature works.

    You’re concerned that some people have too much. That’s it. They just have too much, by your standard, whatever that is.

    You mock us for calling them “job creators” by implying that by that we mean that only their rich guy toys need to be produced by us, the little guys.

    Bill Gates has a huge mansion. And yes, people like me benefitted for a short time while they built the house, which is not nothing. But, you seem to imply that Gates just had that money. It just appeared out of thin air, and in quantities too high for your liking.

    The truth is that Bill Gates provides things TO US. We benefit greatly from his products. The same is true of Zuckerberg’s product. Exxon too.

    If someone finds a way to SERVE millions of people, they get rich. If they can’t, why do it at all? If your boss came to you and said that you were going to take a 90% pay cut, even though there was plenty of money to continue to pay you the same, you’d find something else to do. Conversely, if they told you you’d be getting a 500% pay increase to do exactly what you’ve been doing, you’d take it!

    You think some people “have” too much, and you don’t care to consider what they DO to earn it. You think some have too little, and you don’t care THAT they don’t do the same type of things that Gates and Zuckerberg do.

    Let’s say there was a cap on all income. Whatever you think is prudent. You earn half of that. Your boss comes to you and says, “Steve, Bro! Can I call you Steve? Listen, Steve. We’re maxing out your pay! BUT… We need you to design, prototype, patent, produce, and distribute a product that will be a no-brainer for millions of people to buy at a reasonable price for their homes”, would you do it? Could you??

    THAT’S the difference between guys like us and Bill Gates. He did it. We haven’t.

    Is he a more deserving human being? I hear he’s kind of a jerk! But, that doesn’t matter to the market. What matters is that his contribution to the market warrants huge payment. He helps millions of people every second of every day. You and I help a few for 40 hours of every week.

    Like

    Comment by conservative2cents — November 11, 2013 @ 7:08 pm | Reply

    • You imply a great deal. The label “job creators” was used by conservatives as a mask. If the rich are the job creators, then where are the jobs as the rich have gotten very much more rich over the last 30 years. Calling them job creators if the jobs they create are overseas is a bit disingenuous and deserves mocking. And, Bill Gates, ah, Bill Gates. Mr. Gates created his wealth by massively overcharging for his goods. Of course, we did not need to buy them, but Mr. Gates did any number of things to make sure we had to buy them. They are called anti-competitive practices and he lost many a lawsuit in Europe because of them. (No so much here as politicians are cheaper here.)

      The proper role of government is to set the rules of public discourse which includes commerce. If our society is to be structured so that everyone sort kinda pays their own way (not really, of course) then the system must have “fair wages.” But over the last 40 years as workers productivity has gone up and up (fulfilling their part of the bargain) and corporate profits have gone up and up to record levels (as have cash reserves of businesses), workers wages have been stagnant. So, why was that? If you say “market forces” I shall scream. The primary sources of those changes have been tax law changes benefiting the rich (encouraging greed) along with labor law changes and business law changes (free trade agreements, etc.). These changes were bought through political contributions of the people who benefited.

      Is your reality different? I have been a wage slave and a small business owner both and I can appreciate the call for less regulations, but the evidense is clear. As regulations decrease or become difused or ineffective (regulators bought off, come from the industry being regulated, etc.) things get worse for ordinary people.

      PS We’ve moved (again)! Just change the Apt # from 28C to 17A (110 feet down and about 30 feet east). Effective Date: October 1, 2013

      *Entia non sunt multiplicanda praeter necessitatem.* ************** Steve Ruis

      Like

      Comment by stephenpruis — November 12, 2013 @ 7:36 am | Reply

      • So. What’s the answer? Income caps and minimum wages? And who decides?

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        Comment by conservative2cents — November 12, 2013 @ 10:27 am | Reply

        • We keep muddling through. When the min wage is so eroded by inflation that it would be 20% larger if none had occured, should we do something? Should the minimum wage be tied to productivity? Should workers get a set Percentage of the corporate gross? Most of these I don’t think a federal government should be involved in. The min wage is an exception because everybody employing min wage workers should have a level playing field. And if you don’t like their effort fire them an replace them with more enegetic folks. Setting minimums is reasonable. Setting maximums, like the Swiss are suggesting, I really don’t know, but making $500,000 per hour seems a bit much, especially in a country in which money is power. (That figure is a billion dollars per year of income.) People making that much money won’t be beggared by higher taxes, so one option is progressive tax rates that keep going up with income (on a sliding scale) instead of currently where the top bracket stops marginal tax rate increases at $250,000 per year.

          What do you think?

          PS We’ve moved (again)! Just change the Apt # from 28C to 17A (110 feet down and about 30 feet east). Effective Date: October 1, 2013

          *Entia non sunt multiplicanda praeter necessitatem.* ************** Steve Ruis

          Like

          Comment by stephenpruis — November 12, 2013 @ 11:05 am | Reply

          • I think minimum wage employees are hurt by minimum wage. I think that wages would rise significantly at the low end of the spectrum if min wage was done away with. It’s only a problem for business when you raise the minimum wage because they think the natural min is lower than the mandated one.

            On the other end… I don’t think we should use words like “obscene” to describe wealth at any level. It only feeds feelings of envy. It’s not subjective. To a kid living in a too small house in a rough neighborhood, my house would seem like a mansion. Should he really think it’s obscene? Why? I was that kid. I barely graduated high school. I flunked out of a community college. Then I worked. I saw people living in houses like the one I have now. I wasn’t jealous. I didn’t think I’d never have one. I aspired to have a house like theirs, and I got it.

            I have friends now with bigger, nicer houses than mine, in even better neighborhoods. Sometimes, I get a little pang of remorse that I wasn’t as committed to my studies as I should have been. I could have had what they have, and possibly more. But I know that that was my failing, not theirs.

            Like

            Comment by conservative2cents — November 12, 2013 @ 5:34 pm | Reply

            • Oh come on, wages would go up if the min wage were eliminated? If employers wanted to raise wages, the min wage law doesn’t stop them. All kinds of employers are proud of the fact that they pay more than the min wage right now.

              Seriously, you don’t think that hedge fund managers who make a million dollars an hour for doing very little and producing nothing that that level of compensation isn’t obscene? Especially when these same people are contributing to anti-union activities and opposing min wage increases and trying to reduce the safety net that they do not need, nor do contribute excessively towards?

              I agree that the rhetoric has gotten “inflamed” but as I say on my blog “I didn’t start the war” and “we are losing.” I also don’t think there is an honor in bringing a knife to a gun fight.

              PS We’ve moved (again)! Just change the Apt # from 28C to 17A (110 feet down and about 30 feet east). Effective Date: October 1, 2013

              *Entia non sunt multiplicanda praeter necessitatem.* ************** Steve Ruis

              Like

              Comment by stephenpruis — November 13, 2013 @ 7:31 am | Reply

              • The war between whom, exactly? Rich and poor? It’s silly! What happens if all “the rich” (top 1%, let’s say) just vanished and left their property and piles of money to the rest of us?

                What would that solve? The next 1% would take their place and figure out how to get a bunch of the money. The lower 50% just couldn’t fill that void. They’re the lower 50% for a reason. They (we) don’t know what it takes.

                And if we made it against the law to be “obscenely” wealthy, what would that solve? Smart people would only do as much as is necessary to earn whatever max is set. Or, they’d do as much as possible to hide their money from the government. And poor people would not get any richer.

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                Comment by conservative2cents — November 13, 2013 @ 10:54 am | Reply

                • My goodness, you overextend everything I write. “Against the law” to be obscenely wealthy? Where did you get that?

                  I merely point out that fifty years ago there were rich people. They had fancy cars and nice houses, etc. Fine. I had and have no complaint. I have met many a rich person and have found them mostly to be ordinary people. What I object to is thise rich people gaming the system to become even more rich to then game the system even more. Consider the hedge fund managers who were making, at the time, hundreds of millions of dollars per year. Gosh, could they manage to live on that? You’d think so. But that was not enough. They bribed our officials to redefine the money they make as “deferred interest” and set a rate of 15% tax on it for federal purposes. What is so special about their income that they pay the lowest rate upon it, upon all of it? Is it a matter of national security? Is it charitable? If I make money by gambling, a risky venture to be sure, I must declare my earnings as “ordinary earnings.” If I make enough that way I end up paying almost 40% on monies earned past $250,000. Should I get a lower rate because the way I make my money has certain elements of risk in it? Apparently the hedge fund managers do.

                  If you look at the difference between the 1960’s rich and the rich now, you will see a quantitative and qualitative difference. My issues are with those of the rich who are actively gaming the system, not the rich who are living good lives and being philanthropic, etc.

                  PS We’ve moved (again)! Just change the Apt # from 28C to 17A (110 feet down and about 30 feet east). Effective Date: October 1, 2013

                  *Entia non sunt multiplicanda praeter necessitatem.* ************** Steve Ruis

                  Like

                  Comment by stephenpruis — November 13, 2013 @ 11:43 am | Reply

                  • I overextend because I’m jumping to a possible endgame. Your type of rhetoric has led to that type of “solution” in the past, you know. And I overextend to say that there’s just not that much money there. Give all of the property owned and earned by the top 1% to the rest of us. It’s a heck of a payday, but in the grand scheme of things, it wouldn’t make that much difference in our lives.

                    Why don’t you just support a flat tax on all types of income? Since when is the government supposed to evaluate how much good a citizen is doing with their money? Would you exempt a guy from higher taxes if his gaming the system allowed him to give much much more to charity? It’s all so silly!

                    The problem, like I said, is that there’s no good way to define “obscene”. What if I take home a million a year? Is that not obscene? It’s ten times a hundred grand! Certainly, a guy has more than enough if he’s being paid a million a year, right? How about half a million? That’s five times what I would call a comfortable living.

                    Why do you care that he pays less as a percentage? A guy making 10 million and paying 15% pays $1,500,000! 15 times a “comfortable living”. But HE’S the one NOT paying his “fair share”??

                    Here’s the deal. You and people like you only seem to want to hurt other people as much as you can. Your suggestions only serve to make poor people feel better by sticking it to the rich. Nothing more.

                    Yes, the rich are absolutely the job creators. Even government employees are employed by a rich entity, comprised of people who get rich by doing not much productive work. The guy who “produces nothing” makes things happen. Things that require hundreds or thousands of people to actually produce. Yours, sir, is a twisted and selfish view of the world.

                    The “gamer” has his damned head on straight. Money in the hands of the people is better spent to make peoples’ lives better than in the hands of the government.

                    You want to make life better for the poor, right? So stop telling them that someone is getting rich at their expense, and start telling them that if they want what richer people have, even just a little richer, DO what they do!

                    I know mega-rich people. You know what they don’t do? Blame people for their own failures. WHEN they fail, they fail big. But they know that THEY have failed. They learn from it.

                    My aunt is a big liberal. Huge! We disagree on everything. But, she is a prominent voice in the Montessori community. My girls went to Montessori for a time. One thing they learned is that “mistakes” are part of the learning process. “A good student treats mistakes as an opportunity to learn”. My daughter told me that at age 5!

                    Most of my aunt’s former students are RICH, by any standard. And she advocates Montessori training for public schools. SHE, the liberal, is more in line with me than you are! At least in what she teaches her students.

                    As for your belief that production should equal pay, or whatever you mean to say when deriding rich guys for not producing… That’s not what money is for. Money rewards help. That’s why it’s going above and beyond to help someone and not expect payment. That’s why rich guys get rich. That’s why welfare ruins families for generations. That’s why I earn what I earn and you earn what you earn.

                    The more people you help, the more money you will get. If your occupation is to work with your hands for a week on a piece of furniture that nets you $400.00, and you can keep that pace, helping 52 people per year, you’ll get $20,000 a year.

                    If you find a way to help a region of the country to learn about the benefits of the latest and greatest mousetrap, whether by knocking on doors or mass email, you’ll earn hundreds of thousands, possibly.

                    If your job is to bring millions of people entertainment by being Michael flippin’ Jordan, you’ll earn millions.

                    What’s the lesson? Try to find a way to make your contribution scalable. AND… BE HELPFUL!

                    TO BE CLEAR: Money does not, cannot reward virtue. The carpenter is doing good work. He may be a man who beats his wife and children. Money doesn’t care.

                    The rapper may spread ideas of theft, drug use, and murder. Good work? I don’t think so. But some have become rich. Money doesn’t care. These guys are helpful in that hey provide what an audience of buyers wants.

                    If everybody understood this, more help to more people would necessarily be provided.

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                    Comment by conservative2cents — November 14, 2013 @ 1:57 am | Reply


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